Investing Research Articles

Can machine learning (ML) algorithms improve stock picking? In the May 2020 version of their paper entitled “Stock Picking with Machine Learning”, Dominik Wolff and Fabian Echterling apply ML to insights from financial research to assess stock picking abilities of different ML algorithms at a weekly horizon. Their potential return predictor inputs include equity factors… Keep Reading

The Trading Calendar presents cumulative return visualizations for the S&P 500 Index across the calendar year and across each calendar month. Three alternative perspectives on U.S. stock market performance by calendar month are: (1) percentage of positive returns; (2) ratio of average return to standard deviation of returns; and, (3) distribution of returns. Using monthly… Keep Reading

Below is a weekly summary of our research findings for 7/6/20 through 7/10/20. These summaries give you a quick snapshot of our content the past week so that you can quickly decide what’s relevant to your investing needs. Subscribers: To receive these weekly digests via email, click here to sign up for our mailing list.

Financial media each month report retail sales, the largest component of U.S. Gross Domestic Product, as a harbinger of stock market behavior. Do retail sales reliably predict U.S. stock market behavior? To investigate, we relate monthly change in retail sales to monthly S&P 500 Index return. We consider both seasonally adjusted (SA) and non-seasonally adjusted… Keep Reading

Most stock data sources present Total Return (TR), 100% reinvestment of dividends with no participation in firm rights issuances and share issuances/repurchases, as representative of investment performance. An alternative perspective is Total Return for All Shareholders (TRAS), the return for an investor who maintains a constant fraction of issued shares (see the table below). Can… Keep Reading

Do interest rate effects explain/predict the poor performance of value stocks over the past decade, and especially during 2017 through early 2020? In their May 2020 paper entitled “Value and Interest Rates: Are Rates to Blame for Value’s Torments?”, Thomas Maloney and Tobias Moskowitz investigate interactions between equity value factors and the interest rate environment…. Keep Reading

Is investor attraction to high-reward/high-risk (lottery) stocks a crucial contributor to stock return anomalies? In their May 2020 paper entitled “Lottery Preference and Anomalies”, Lei Jiang, Quan Wen, Guofu Zhou and Yifeng Zhu aggregate 16 measures of lottery preference into a single long-short factor via time-varying linear combination. Examples of the 16 measures are: maximum… Keep Reading

Are published studies that predict higher returns for some U.S. stocks and lower for others based on firm accounting, stock trading and other data reproducible? In their May 2020 paper entitled “Open Source Cross-Sectional Asset Pricing”, Andrew Chen and Tom Zimmermann make available data and code that reproduce many published cross-sectional stock return predictors, allowing… Keep Reading

“A Quantitative Approach to Tactical Asset Allocation” is a highly influential paper (over 234,000 downloads from SSRN) about asset allocation based on trend following, with the original version posted in early 2007 and a revision in early 2013. The strategy in that paper applies a 10-month simple moving average (SMA10) timing rule separately to each… Keep Reading

What are the roles of changes in earnings forecasts and the discount rate on stock valuation during the COVID-19 stock market crash? In the May 2020 update of their paper entitled “Earnings Expectations in the COVID Crisis”, Augustin Landier and David Thesmar investigate firm-level analyst earnings forecast revisions and discount rate changes as jointly reflected… Keep Reading